🔸6.2 Commodities

Commodities have as much individual character as stocks. One difference between the behavior of commodities and stock market averages is that in commodities, primary bull and bear markets at times overlap each other. Sometimes, for instance, a complete five-wave bull market will fail to take a commodity to a new all-time high, as the chart of soybean futures illustrates in Figure 6-9. Therefore, while beautiful charts of Supercycle degree waves do exist for a number of commodities, it seems that the peak observable degree in some cases—especially in non-inflationary environments—is Primary or Cycle degree.

Also in contrast to the stock market, commodities most commonly develop extensions in fifth waves within Primary or Cycle degree bull markets. This tendency is entirely consistent with the Wave Principle, which reflects the reality of human emotions. Fifth wave advances in the stock market are propelled by hope, while fifth wave advances in commodities are propelled by a comparatively dramatic emotion, fear: fear of inflation, fear of drought, fear of war. Hope and fear look different on a chart, which is one of the reasons that commodity market tops often look like stock market bottoms. Commodity bull market extensions, moreover, often appear following a triangle in the fourth wave position. Thus, while post-triangle thrusts in the stock market are often "swift and short," triangles in commodity bull markets of a large degree often precede extended blowoffs. One example is shown in the chart of silver in Figure 1-44.

Figure 6-8

The best Elliott patterns are born from important long term breakouts from extended sideways base patterns, as occurred in coffee, soybeans, sugar, gold and silver at different times in the 1970s. Unfortunately, the semilogarithmic chart scale, which may have indicated the applicability of Elliott trend channels, was not available for this study.

Figure 6-8 shows the two-year price explosion in coffee from mid-1975 to mid-1977. The pattern is unmistakably "Elliott," even down to a Minor degree. The ratio analyses employed beautifully project the peak price level. In these computations, the length of the rise to the peak of wave (3) and to the peak of wave 3 each divide the bull market into the Golden Section at equivalent distances. As you can see by the equally acceptable counts listed at the bottom of the chart, each of those peaks can also be labelled as the top of wave ③, fulfilling typical ratio analysis guidelines. After the pattern reached the peak of the fifth wave, a devastating bear market struck apparently from out of the blue.

Figure 6-9 displays five and a half years of price history for soybeans. The explosive rise in 1972-73 emerged from a long base, as did the explosion in coffee prices. The target area was met here as well, in that the length of the rise to the peak of wave 3, multiplied by 1.618, gives almost exactly the distance from the end of wave 3 to the peak of wave 5. In the ensuing AB- C bear market, a perfect Elliott zigzag unfolded, bottoming in January 1976. Wave B of this correction is just shy of .618 times the length of wave A. A new bull market took place in 1976-77, although of subnormal extent since the peak of wave 5 falls just short of the minimum target of $10.90. In this case, the gain to the peak of wave 3 ($3.20) times 1.618 gives $5.20, which when added to the low within wave 4 at $5.70 gives the $10.90 target. In each of these bull markets, the initial measuring unit is the same, the length of the advance from its beginning to the peak of wave three. That distance is then .618 times the length of wave 5 measured from the peak of wave 3, the low of wave 4, or in between. In other words, in each case, some point within wave 4 divides the entire rise into the Golden Section, as described in Chapter 4.

Figure 6-10 is a weekly high-low chart of Chicago wheat futures. During the four years after the peak at $6.45, prices traced out an Elliott A-B-C bear market with excellent internal interrelationships. Wave B is a contracting triangle exactly like those discussed in Chapters 2 and 3. The five touch points conform perfectly to the boundaries of the trendlines. Though in an unusual manner, the triangle’s subwaves develop as a reflection of the Golden Spiral, with each leg related to another by the Fibonacci ratio (c = .618b; d = .618a; e = .618d). A typical "false breakout" occurs near the end of the progression, although this time it is accomplished not by wave e, but by wave 2 of C. In addition, the Wave A decline is approximately 1.618 times the length of wave a of B, and of wave C.

Figure 6-9

Figure 6-10

Thus, we can demonstrate that commodities have properties that reflect the universal order that Elliott discovered. It seems reasonable to expect, though, that the more individual the personality of a commodity, which is to say, the less it is a necessary part of human existence, the less it will reliably reflect an Elliott pattern. One commodity that is unalterably tied to the psyche of mass humanity is gold.

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